Global Recovery Remains on Track... For Now

So far, the indications are that the global economic recovery remains on track and broadly in line with Global Economic Prospects (GEP) 2010 projections. In high income countries (HICs), the (annualized) Q-o-Q output rebound during the final quarter of 2009 has been particularly strong in the US (5.9 percent), Japan (4.6 percent) and Canada (5 percent). This has masked weaker growth performances in other (HICs) such as the UK (even as the 1.1 percent growth was the first positive number after six straight quarterly declines), Germany (back to zero growth), and Italy (-0.8 percent).

Within the East Asia and Pacific (EAP) region, the Chinese fiscal stimuli have been instrumental in the Chinese recovery, which started around mid-2009. This has spilled over to the rest of the region and growth has accelerated significantly towards the end of 2009, with growth particularly strong in Thailand and Malaysia.

In the Europe and Central Asia (ECA) region, growth remains weak with some countries recording a double-dip as growth fell back into negative territory. Latvia and Lithuania, for instance, recorded negative growth rates in the fourth quarter of last year. However, in the case of the latter, the slip into negative growth territory (-6.2 percent) is off a high base (24.3 percent) in the third quarter.

In Sub Saharan Africa, the gradual recovery in South Africa gained further momentum, but continued political uncertainty in Kenya shifted the country back into recession. In other developing countries, the lack of formal quarterly GDP data is hindering the assessment of economy-wide trends. But from the limited data available, it seems that the developing country recovery remains on track. For instance, developing country exports has risen by 20.3 percent in the year to December (nearly double the 11.5 percent increase registered in high income countries), while the developing country imports surged by 24 percent during the same period - reflective of surging domestic demand in emerging economies. Likewise, industrial production in developing countries has risen by 13.1 percent and with the exception of the Latin America and Caribbean (LAC) region, have registered double-digit growth rates.

Growth prospects are similarly differentiated. For ECA, as financial markets continue to assess the (relative) sustainability of debt and deficits around the globe, ongoing uncertainty will hamper recovery. For the HICs and EAP, a moderation in growth is expected during the course of 2010, as fiscal stimuli unwind and as the inventory cycle abates. Exceptionally bad weather conditions in some Northern Hemisphere countries may also be a drag on growth in the first quarter of 2010. Furthermore, given the high base created by the exceptionally strong recovery during the last few quarters, growth is expected to moderate in the coming quarters.

Finally, the data indicate that developing countries have been able to recover more quickly (and time will tell whether also in a more sustainable way), as they followed sounder economic policies, including better fiscal and regulatory discipline, going into the financial crisis.